Lauri Jo Hartz v. LIBERTY MUTUAL INSURANCE No. 00-2495  COMPANY

PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
 LAURI JO HARTZ,
Plaintiff-Appellant,
v.
LIBERTY MUTUAL INSURANCE No. 00-2495 
COMPANY; LIBERTY MUTUAL FIRE
INSURANCE COMPANY; LIBERTY
MUTUAL GROUP,
Defendants-Appellees. 
Appeal from the United States District Court
for the District of Maryland, at Greenbelt.
Peter J. Messitte, District Judge.
(CA-00-453-PJM)
Argued: September 25, 2001
Decided: October 29, 2001
Before WILKINSON, Chief Judge, and WILKINS and
TRAXLER, Circuit Judges.
Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Wilkins and Judge Traxler joined.
COUNSEL
ARGUED: C. William Michaels, Baltimore, Maryland, for Appel-
lant. Michael McGowan, MCGOWAN & SMATHERS, L.L.P., Lau-
rel, Maryland, for Appellees.

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OPINION
WILKINSON, Chief Judge:
The district court granted summary judgment for Liberty Mutual
Insurance Company. The court held that Lauri Jo Hartz’s complaint
was styled in tort not contract, and Maryland law provides no first-
party action in tort against an insurer for bad faith failure to settle a
claim. We affirm.
I.
Plaintiff Lauri Jo Hartz and her husband, Benjamin Hartz, had a
homeowner’s insurance policy for their residence in Rockville, Mary-
land. The policy was issued by Liberty Mutual Insurance Company.
On January 12, 1997, a fire broke out in the Hartz home which
resulted in substantial smoke damage. There were no personal injuries
resulting from the fire.
Hartz promptly filed a claim with Liberty Mutual. Hartz found it
difficult to be in her home after the fire because the smoke aggravated
her asthma. Hartz informed Liberty Mutual of her medical condition
and Liberty Mutual knew the claim needed to be expedited.
Within days of Hartz’s initial claim, Liberty Mutual sent out a crew
to clean the smoke-damaged carpet and furniture. However, neither
that crew nor a subsequent crew was able to successfully repair the
damage. Hartz’s asthma began to worsen and she was unable to stay
in her home, even though other family members were able to do so.
Eventually, it became necessary to hire appraisers and get estimates
for the remaining clean-up and replacement costs.
Hartz selected an appraiser, but Liberty Mutual rejected her
appraiser. Liberty Mutual asserted that the appraiser was not impartial
as required by the policy. However, Hartz argued that the policy only
required that the appraiser be competent. After lengthy delays, Lib-
erty Mutual finally agreed to Hartz’s appraiser. Yet the delays contin-
ued and Hartz decided to hire counsel and file a complaint with the
Maryland Insurance Administration ("MIA") seeking to compel Lib-
erty Mutual to finalize the insurance claim.
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On April 17, 1998, the Maryland Insurance Commissioner issued
an opinion which found that Liberty Mutual had misrepresented por-
tions of the policy with respect to the selection of an appraiser. The
Insurance Commissioner ruled that Liberty Mutual had not acted in
good faith and had "stopped the appraisal process" by refusing to
accept Hartz’s appraiser. By August, 1998, the Hartz home had been
properly cleaned and the damaged items had been replaced. All
claims under the policy had been paid. In March 1999, a Consent
Order was executed in which Liberty Mutual acknowledged that it
had violated the unfair claim settlement provision of the Maryland
Code, Md. Code Ann., [Ins.] § 27-303(1), and Hartz’s policy by
objecting to Hartz’s appraiser. Liberty Mutual agreed to pay a $500
fine.
Hartz then brought this action, alleging that the eighteen month
delay in settling her claim adversely impacted her health and pre-
vented her from working from home. Hartz alleged that this delay was
a direct result of Liberty Mutual’s unreasonable and improper con-
duct. The district court determined that, under Maryland law, there
was no private right of action against an insurance company in tort
for failure to settle a claim with an insured. The court further held that
any contract action Hartz had was moot because Liberty Mutual had
already paid Hartz’s claims for damages to her home as a result of the
fire. The district court granted summary judgment for Liberty Mutual.
Hartz appeals.
II.
Hartz has pleaded a variety of counts including misrepresentation,
tort arising from contract, and intentional infliction of emotional dis-
tress. The problem of delay in claims settlement procedures is a real
one, and we do not minimize the difficulties that Hartz experienced
at the hands of her insurer. We perceive several problems, however,
with Hartz’s complaint.
A.
To begin with, the complaint attempts to circumvent Maryland’s
established administrative process for dealing with insurance com-
plaints. The MIA is an independent agency that regulates Maryland’s
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insurance companies, agents, and brokers by enforcing the state’s
insurance laws. Md. Code Ann., [Ins.] §§ 2-101-114, 2-201-214
(2000). The MIA is responsible for, inter alia, investigating consumer
complaints about insurance coverage, licensing insurance companies,
and investigating acts of insurance fraud. Id. Consumers like Hartz
may file complaints with the Consumer Complaint Investigation Sec-
tion of the MIA, which investigates and resolves complaints made by
policyholders. For example, claims can be filed for alleged unfair set-
tlement practices, which include misrepresenting pertinent facts or
policy provisions, refusing to pay a claim for an arbitrary or capri-
cious reason, and failing to settle a claim promptly. Md. Code Ann.,
[Ins.] § 27-303 (2000). The MIA not only has the power to fine insur-
ance companies, but may, after repeated violations, revoke the com-
pany’s license to sell insurance in Maryland. Md. Code Ann., [Ins.]
§§ 27-305 & 4-113 (2000).
In this case, a fine was levied by the MIA and Hartz’s claim was
eventually settled. Hartz is now attempting to circumvent Maryland’s
system in court. But the federal courts simply have no license to
upend Maryland’s decision to resolve this sort of insurance complaint
administratively. Indeed, the provisions of the Maryland Code for
unfair settlement practices provide only for administrative remedies.
See Md. Code Ann., [Ins.] § 27-301 (2000). This may lead to some
delay or perceived inequity. However, Maryland has decided that the
balance between the costs of insurance policies for its citizens and
delays in settling insurance claims is best struck with an administra-
tive process. We have no authority to alter that decision.
B.
Second, Hartz claims she was only bringing a breach of contract
action for consequential damages. There is no dispute that all of
Hartz’s claims under the homeowner’s policy for the fire have now
been paid in full. Hartz has pointed to nothing that would permit
recovery beyond the coverage of the subject policy. See Md. Code
Ann., [Ins.] § 27-305 (making restitution, subject to the policy limits,
a penalty for unfair trade practices); Md. Code Ann., [Ins.] § 19-203
(2000) (generally restricting coverage for medical expenses under a
homeowner’s policy). Maryland has declined to enact a statute pro-
viding for collection of damages beyond the confines of the insurance
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agreement. See generally 47 A.L.R. 3d § 314 (2001); 44 Am. Jur. 2d
Insurance §§ 1771-1772 (1982). To allow Hartz to now make claims
for damages beyond the policy limits because of a preexisting medical
condition or other consequential business developments would funda-
mentally alter this insurance contract.
Moreover, a breach of contract does not typically give rise to an
action in tort. By styling her complaint as one for breach of contract,
Hartz attempts to avoid the Maryland bar against tort actions. No
amount of artful pleading such as terming the damages "consequen-
tial" can disguise what Hartz is seeking — extra-contractual damages
for additional medical expenses, business losses, and emotional dis-
tress. These damages do not arise naturally from her homeowner’s
insurance policy. These damages resulted from Liberty Mutual’s
delay. And Maryland has made a considered decision not to recognize
a tort action for bad faith failure to settle with an insured. Mesmer,
725 A.2d at 1058 ("A contractual obligation, by itself, does not create
a tort duty. Instead, the duty giving rise to a tort action must have
some independent basis.").
The Maryland Court of Appeals has repeatedly held that the duty
which is owed to an insured for failure to settle a claim sounds in con-
tract and not in tort. See, e.g., Jones v. Hyatt Ins. Agency, Inc., 741
A.2d 1099, 1107-08 (Md. 1999) ("Under Maryland law, an insurer
who mistakenly denies coverage does not breach a tort duty owed
either to the insured or to third-party claimants . . . . Instead, the duty
owed . . . is entirely contractual."). The Maryland rule serves to "con-
fine actions between an insured and his or her insurer to the realm of
contract law, rather than letting such actions expand to tort propor-
tions." Yuen v. Am. Republic Ins. Co., 786 F. Supp. 531, 533 (D. Md.
1992). The decision of how to regulate insurance companies and rem-
edy consumer complaints is a core issue of state policy which federal
courts are bound to follow, not free to reconstruct.*
*We do not address here the recovery of expenses such as attorney’s
fees where an insurer breaches a duty to defend, thus requiring an
insured to defend itself in an action brought by an injured third-party.
The instant case deals with the quite different question of whether there
is a first-party action in tort against an insurer for failure to settle a claim.
See, e.g., Bausch & Lomb, Inc. v. Utica Mut. Ins. Co., 735 A.2d 1081,
1095 (Md. 1999) (stating that the "exception to the American rule is lim-
ited to the enforcement of ‘third-party liability coverage’ and does not
apply to actions to enforce first party coverage").
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C.
Liberty Mutual also objects on the merits of Hartz’s claims. With
respect to the intentional misrepresentation count, the insurer claims
that there was no evidence it knew the misrepresentation was false or
that Hartz in any way justifiably relied upon it. In addition, because
there was no tort involved here at all, Liberty Mutual claims that
Hartz’s count of tort arising from contract must likewise fail. Finally,
the insurer contends that any misconduct on its part falls well below
the high threshold necessary to maintain an action in Maryland for
intentional infliction of emotional distress.
In view of our earlier discussion, we see no need to address the
merits of Hartz’s underlying tort claims. It is enough to note that our
system of federalism requires the federal courts to respect the admin-
istrative structure established by the Maryland legislature for process-
ing claims of this sort. In doing so, we respect as well the decision
of the Maryland courts not to supplant that structure with tort actions
seeking unanticipated damages arising out of the claims settlement
process.
The judgment of the district court is accordingly
AFFIRMED.
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